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Baroness Morris of Bolton moved Amendment No. 6:

"(5) If during the period referred to in subsection (1A) a woman receives a payment which qualifies as earnings but which relates to a period which exceeds the period in that subsection, the earnings which constitute that payment shall be considered as accruing from day-to-day and shall be apportionable in respect of time accordingly.""

The noble Baroness said: My Lords, in Committee I introduced the same amendment. It would reverse inequalities among employees and reduce the unnecessary cost to the taxpayer brought about by the current rules. The rules require employers to include full annual bonuses in statutory maternity pay calculations where the annual bonus is paid to the employee in the eight-week period used to calculate statutory maternity pay. The vast majority of employees will receive their bonus in the remaining 44 weeks of the year. These bonuses are therefore not included in full or part in the calculation of their statutory maternity pay.

That clearly gives rise to gross inequalities between women in respect of the treatment of annual bonuses in the SMP calculation, which in turn could, and does, create situations where women on identical remuneration packages receive significantly different benefits while on maternity leave. That is especially unfair as the employee has no control over when their annual bonus is paid, so it is a lottery whether their bonus is included in their statutory maternity pay, although, as I said in Committee, I do not think that that was what statutory maternity pay was ever supposed to be about in the first place.

As the Government refund employers 92 per cent of statutory maternity pay, this issue should be on the Government's agenda. The current system is clearly unfair and warrants reform. The amendment would reduce the cost of statutory maternity pay to the Government, avoid giving an arbitrary and potentially significant advantage to a proportion of employees and establish a precedent that could be followed in relation to any provision for earnings-related statutory paternity pay.

In Committee, the Minister accepted the aim of the amendment. The noble Lord, Lord Hunt, suggested that to unpick one element of the system was not sustainable and would serve only to complicate the administration and understanding of the existing rules. Feedback that I have received from industry suggests that that is not necessarily the case. I would therefore ask the Minister and his department to work with HR experts further to understand the issues better and to look again at the whole system.
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I understand that the Department for Work and Pensions has made a commitment to consider the case for further simplification on the way in which employers administer statutory maternity pay once the measures in the Work and Families Bill have been introduced—once again, as my noble friend Lady Miller said, making decisions after the Bill has passed through Parliament. Surely that should have been looked at in preparation for the Bill rather than after it. Will the Minister confirm that the consultation will cover bonuses?

Also in Committee, the Minister kindly offered to meet those who briefed us on this issue. I hope that in his reply he can inform your Lordships on how he feels the meeting fared. I understand that during the meeting the view was expressed by the Government that the 1992 directive on pregnant workers, which contains a no detriment clause, prevents the Government reducing the level of protection offered to workers from the level offered when the directive was passed. Therefore, I understand that the Government believe that the no detriment clause prohibits pro-rating of bonuses and statutory maternity pay as that would result in a reduction of benefits to women who are eligible to receive a level of statutory maternity pay that reflects their full bonus. I am sorry but this is a bit complicated.

I have received conflicting legal advice on this directive, which is not consistent with the interpretation of the legislation by the Department for Work and Pensions. Article 1(3) states that the directive itself,

afforded to workers when the legislation was adopted in 1992. That terminology is crucial as it is not phrased as other parts of the directive are, in terms that expressly direct member states to act or prohibit them from acting in a specific way. As such, it is suggested that this provision does not amount to a prohibition on member states reducing or amending the level of protection offered to workers. This conflicts with the DWP's contention that to reform the SMP rules, as this amendment suggests, would put the UK in breach of this directive.

We need a system for maternity pay that is fair, robust and fit for today's labour market, which has changed enormously since statutory maternity pay regulations were first introduced—as I am sure all noble Lords would agree. The example of bonus payments suggests that the current system may not be living up to those expectations. I hope for a commitment from the Minister in his reply that the Government will continue to look at this issue. I beg to move.

5.30 pm

Baroness Walmsley: My Lords, I do not intend to say much, because I am absolutely dying to hear what the Minister has to say in response to this amendment. The noble Baroness, Lady Morris of Bolton, must have had to wrap a wet towel around her head in order
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to write her speech in moving the amendment. The Minister will probably have had to do the same in preparing his reply.

My approach to this is that there is clearly an anomaly here if two women on exactly the same remuneration package can receive totally different amounts of maternity benefit. In the real world, people regard their normal bonus as part of their annual salary. They rely on it when they decide on the outgoings of their household—for example, paying their mortgage, buying their car and all these big outgoings. Bonuses really need to be taken into account for all mothers under the same contractual arrangements.

If there is—what was the phrase?—a "no detriment clause", which means that we are not allowed to put this anomaly right, that is mad. There is clearly going to be a detriment to the woman whose bonus falls outside the period of maternity pay. I will say no more as I really cannot wait to hear the noble Lord's explanation.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Hunt of Kings Heath): My Lords, I hope I do not disappoint the House. The noble Baroness, Lady Morris, argued her case eloquently, and then anticipated what I was going to say. There is a bit of rough and ready about the current system; I do not deny that. One of the complaints that the noble Baroness did not make but that has been made is that it is open to abuse. We do not think that there is evidence of a considerable degree of abuse. We have concerns that making changes in the ways the noble Baroness suggested would actually bring much greater complexity to employers. It is also worth making the point that her amendment deals with a case in terms of taking unusually high earnings and managing them down. It does not deal with the opposite case of a period in which a woman might receive unusually low earnings, and manage it up. I will come on to the Pregnant Workers Directive in a moment because that presents a challenge in this area; I will not say more than that.

There is no question that this has been debated over the years, and there has been a constant search for a system that balances the needs of fairness and simplicity for both employers and employees. The Government have talked to interested parties, and I assure the noble Baroness that we continue to do so. She is right that, following our debate at Committee, my officials met representatives of the Prudential to discuss this matter further. We will continue to do that. I understand the point she makes; that we are shortly coming to an end with the current legislation. We will continue, post that date, to talk to relevant parties. If we can find a solution in the future, of course we would have to consider further action.

I stress that a balance has to be made between getting it absolutely right in all ways and having a straightforward system for employers to administer. From the Department for Work and Pensions' point of view, this trade-off is consistently made. Noble Lords are always asking me about the simplification of
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the benefits regime. We are keen to do that but, again, there is a trade-off. We have a complex benefits system because, as legislation has gone through both Houses, amendments have been made and Members of both Houses have wanted to ensure that our benefits system is as sensitive as possible. This is the same type of trade-off that we have for statutory maternity pay.

There is a question of whether employees of their own volition, and employees and employers in collusion, are seeking to abuse the current system. Obviously, it is difficult to come to absolutely hard and fast conclusions in researching this. Colleagues at Her Majesty's Revenue and Customs, who are responsible for monitoring compliance in this area, are aware that cases arise from time to time. There is no evidence that it is a significant problem, however. It is also worth noting that only 1 per cent of women getting SMP receive more than £1,000 a week for the first six weeks. Compared to very high bonuses, this is a small issue.

The House is inviting me to give a peroration on the Pregnant Workers Directive. I am not sure that I should go down that path. I can say that, following the meeting with Prudential, we received a letter from it relating, I suspect, to the legal points raised by the noble Baroness. We will look into that, and I will ensure that the noble Baroness receives a copy of any response to her points.

I would not want to hide behind the Pregnant Workers Directive. Although it is a challenge and a factor in any consideration, the Government's case rests on the fact that this is a tried and tested system. It is a bit rough and ready, but we are not persuaded that it operates so unsatisfactorily that we should move away from a pretty straightforward system for employers to administer, to one that would be far more complex. I assure the noble Baroness, however, that we will continue to talk about these issues.

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